WTI Drops a Second Day; Goldman Sees Brent Gap Narrowing

By Ben Sharples and Sherry Su -
May 10, 2013

West Texas Intermediate crude fell a
second day, reversing a third weekly gain, as rising supplies
countered signs of economic growth.

Futures slid as much as 2.2 percent, extending yesterday’s
0.2 percent drop, as the dollar gained versus the euro, damping
the appeal of commodities priced in the U.S. currency. Brent
crude retreated 2 percent, leaving its premium versus WTI at
$8.19 a barrel. Goldman Sachs Group Inc. said in a report today
that spread may narrow to $5 in the third quarter.

“It is being dragged down by commodities in general,”
said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt,
who forecasts WTI will average $95 a barrel this quarter. “Gold
nosedived first, followed by the rest,” partly because of a
stronger dollar, he said.

WTI for June delivery dropped as much as $2.11 to $94.28 a
barrel in electronic trading on the New York Mercantile Exchange
and was at $94.52 as of 1:20 p.m. London time. The volume of all
contracts traded was 80 percent above the 100-day average.
Prices declined 23 cents to $96.39 yesterday and are down 1.1
percent this week after rising as much 0.7 percent earlier in
the day.

Cushing Bottleneck

Brent for June settlement slipped $2.06 to $102.41 a barrel
on the London-based ICE Futures Europe exchange. The European
benchmark grade’s premium to WTI closed at $7.72 on May 8, the
narrowest difference since January 2011.

The Brent-WTI differential, the largest exchange-traded
commodity spread, will shrink as the bottleneck at Cushing,
Oklahoma, the delivery point for WTI, eases amid increased
pipeline expansion, including the Ho-Ho line connecting the
Houston crude market with refineries on the U.S. Gulf Coast,
Goldman said in its report. Brent’s premium to WTI may rebound
as early as 2014 as the market becomes saturated with light,
sweet crude, the bank said.

Stockpiles at Cushing, the largest U.S. oil-storage hub,
dropped a second week in the seven days ended May 7 to 49.1
million barrels, according to a May 8 report from the Energy
Information Administration.

Total U.S. inventories rose by 230,000 barrels to 395.5
million last week, the highest level since weekly data started
in 1982, the EIA said. According to monthly data, they were last
at that level in 1931. Output rose to 7.37 million barrels a day
last week, the most since February 1992.

Iraq Exports

Oil fell yesterday even after the Labor Department said
that claims for jobless benefits last week dropped to the lowest
since January 2008.

WTI may extend declines next week, a Bloomberg survey
showed. Fifteen of the 33 analysts and traders questioned, or 45
percent, forecast crude will fall through May 17. Thirteen
respondents, or 39 percent, predicted an increase, and five
projected no change.

The Dollar Index, which tracks the U.S. currency against
those of six major trading partners, rose as much as 0.2
percent.

Iraq restored crude exports yesterday to Turkey after
repairing a pipeline in the northern city of Mosul. The pipeline
from the nation’s northern oil hub of Kirkuk to Turkey’s port of
Ceyhan on the eastern Mediterranean Sea has an average flow of
335,000 barrels a day, state-run North Oil said in a statement.
The link was damaged May 8 by an explosive charge.